Billionaire Richard Branson, the visionary behind Virgin Galactic (NYSE:SPCE), sold more than $500 million of SPCE stock in May in order to bolster some of his other companies. The stock sales reduced Branson’s stake in Virgin Galactic from 53.3% on May 14 to 36.7% on June 2.
While Branson is still Virgin Group’s largest shareholder by far, it’s possible the billionaire might have to sell more SPCE stock to save some of his other companies.
My question is: Can Virgin Galactic rise without Branson’s help in the next 6-12 months? Let’s consider both sides of the argument.
Can you imagine Tesla (NASDAQ:TSLA) without Elon Musk? I sure can’t. The same holds true for Richard Branson. His love of adventure is well-documented. Losing that spirited leadership would be a devastating blow to Virgin Galactic.
Shareholders who bet on the stock returning to the high $30s, where it traded in February, better hope that Branson resolves the issues facing his other firms because a space company without the adventure seeker is like a whiskey producer without a master distiller.
Branson’s net worth is estimated to be $4.2 billion. As he seeks to get commercial flights into space, he’s competing against Elon Musk and Jeff Bezos, whose estimated net worths are $38.8 billion and $149.4 billion, respectively. Compared to them, Branson is not very wealthy.
At this point, it’s not Branson’s money that matters, but his “je ne sais quoi” that will attract both wealthy investors and passengers willing to pay $250,000 for a flight into space. As long as Branson remains involved with Virgin Galactic, it will be much easier for the company to achieve its goal of democratizing space.
“We are at the vanguard of a new industry determined to pioneer twenty-first century spacecraft, which will open space to everybody — and change the world for good,” Branson is quoted as saying on Virgin Galactic’s website.
Virgin Galactic without Branson on board just won’t cut it. If Branson was to sell all of his shares, I think SPCE stock could sink to a low-single-digit stock price.
Earlier this year, Virgin Galactic’s second spaceship deployed its landing gear, achieving what the industry calls “weight on wheels.” That means it was able to carry its own weight and move around the hanger.
In May, the ship took its first glide flight over the company’s facility in New Mexico.
“Today’s VSS Unity flight is another exciting milestone for Virgin Galactic’s progress in New Mexico,” Dan Hicks, executive director of the New Mexico Spaceport Authority, was quoted as saying in a press release.
CEO George Whitesides said during the company’s first-quarter conference call that it needs to do one more glide flight, move on to powered flight testing, and then go from there. Naturally, the novel coronavirus has slowed the firm’s path to commercial flights, but the same is true for Bezos’ Blue Origin.
Interestingly, what could be just as lucrative for Virgin Galactic is hypersonic point-to-point business travel, enabling business executives and wealthy individuals to get halfway around the world in a much shorter time than is currently possible on jets. I’m thinking about the Jetsons when I read about this possibility.
Covid-19 might reduce business travel in the coming years, but there will always be a need for the wealthy to get places quickly. Virgin Galactic could serve this need.
I think Virgin Galactic can do all of that without Richard Branson.
With or without Richard Branson, Virgin Galactic is not going to make money anytime soon.
“This is all momentum driven. It’s not real yet. It will become real, but it’s not real yet,” said Alex King of Cestrian Capital Research in February. “This stock is the essence of speculation. It doesn’t trade on numbers and we don’t think it will trade on numbers for a long time.”
In March, I wrote that SPCE stock was a speculative buy.
However, people like Justin Bieber or Leonardo DiCaprio who have already booked a seat on one of Virgin Galactic’s flights into space absolutely have to buy its stock. To fail to do so would be a short-sighted mistake.
I believe Richard Branson will figure out how to rescue the rest of his empire without giving up his entire investment in Virgin Galactic. If he doesn’t, someone else will likely step into the breach to carry the company over the finish line and into space.
But please don’t buy this stock using your 401(k). It’s too risky for that.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.